The European Central Bank meets Thursday in Frankfurt, where expectations are for either a 25- or 50-basis point interest rate cut. See preview of ECB meet.

The euro stood at $1.1689 vs. the U.S. dollar in the afternoon, a slight decline on the day.

While Europe has seen strong financial inflows of late, project investment in the eurozone has been on the decline. An Ernst & Young study of inward investments in Europe showed investment into the 12-member nations of the eurozone declined by 13 percent in 2002. Investment in the Eastern and Central European countries heading into EU membership rose 14 percent.

"The ascension countries are getting the only growth," said E&Y's Barry Bright. "They are virtually on a par with the EU in terms of attracting manufacturing and overall, they account for about a third of all new projects."

Daimler down

DaimlerChrysler
DCX
(710000) dropped 2 percent, trimming losses as the company warned that its Chrysler unit will lose 1 billion euros in the second quarter. See full story on Chrysler losses.

Earlier, the warning pressured other European automakers, such as BMW (519000), Renault (013190) and Porsche (693773), which were flat to weak. Several autos also reported weak U.S. auto sales for May.

In addition to the Chrysler warning, European autos were also negatively affected by a Goldman Sachs report into the sector. The broker said that GM and Japanese automakers will benefit both by picking up market share in Europe because of the strong euro, and by manufacturing in the U.K., where they will benefit from the weaker pound.

Elsewhere, Royal Ahold
AHO
(33181), the Dutch supermarket owner in the midst of an accounting scandal, increased 5.9 percent as it will sell at least part of its U.S. Foodservice operation, the Financial Times said Wednesday, citing anonymous insiders.

The sources said both private equity investors and at least one corporate partner have expressed interest in either all or some of the unit. The U.S. Foodservice arm is at the heart of Ahold's overstatement of $880 million in earnings. Ahold declined to comment on the report, Reuters added.

"Divestment of US Foodservice makes a lot of sense to us and would reduce net debt (at least our estimated net debt, since nobody knows exactly) to some 9 billion euros," Swiss broker Julius Baer said. "Longer-term it would leave the company with good quality retail assets in the (East coast) U.S., the Netherlands and Scandinavia (assuming also divestment of non-core Europe)."

German logistics group Deutsche Post (555200) rose 1 percent. The group benefited from a report in Die Welt that said it may outsource German parcel delivery service by the end of the year and reduce the number of deliveries from six to five.

Deutsche Post may face scrutiny from European Union competition authorities over allegations from rivals that it uses high stamp prices to fund acquisitions, such as its $1.1 billion takeover of Airborne, The Wall Street Journal said Wednesday. Rival United Parcel Services hired economists who say Deutsche Post overcharged by 40 percent, or 1 billion euros, a year. An EU spokeswoman told the newspaper that the regulator has only recently started examining the study.

Dutch airline KLM
KLM, -33.33%
(00964) improved 3 percent, as it said on Wednesday that May passenger traffic was down 10 percent primarily due to the effects of SARS on the Asia/Pacific route area. In Asia/Pacific, passenger traffic was off 35 percent. Cargo traffic improved 8 percent on a 5 percent capacity increase, the airline added.

Italian bank San Paolo IMI
IMI, -6.43%
rose 0.5 percent in Milan as JPMorgan upgraded its rating to neutral and increased its EPS estimate for 2003 and 2004 by an average of 10 percent. It is boosting the estimates based on cross selling and a recovery in lending growth, JPMorgan said.

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